SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…..part II

…….Or, beware of what you seek

I have been out of the Blog circuit for a couple of weeks. We moved our San Antonio offices to 45 N E Loop 410, Suite 210. San Antonio National Bank is the anchor tenant. Moving was a bear. The actual move went off relatively well save a broken picture frame and a dropped table. Getting everything setup and operational took two weeks. Finally, after a full weekend of hanging pictures, relocating desks and tinkering with the computers, we are good to go.

As I noted in my last blog, the IRS is the largest, most powerful collection agency in the world. The monster is alive and well. The Service has become very active in the auditing and monitoring of businesses that do not pay their payroll taxes and properly report their contract labor.

We have just completed a payroll tax audit with one of our clients. A client, I might add that tries very hard to comply with every rule, no exceptions. Most businesses really don’t understand payroll taxes so even if they try to comply, there are still issues. Typically, they don’t know what “pay items” are subject to payroll taxes. Every year small business owners bring in their work, usually on Quickbooks, for us to prepare their tax returns. I will scan the general ledger and find checks labeled “Bonus” or “Commission”. The business owner generally will treat these as separate checks. They don’t take any payroll taxes out, nor do they pay TWC (Texas) taxes. For some unknown reason, business owners think that by renaming an item that you change its character. This is not true. Any moneys paid to an employee are considered compensation.

Sometimes part of the compensation is not taxable. This would be the case when an employee is being reimbursed for out-of-pocket expenses. There also could be retirement contributions that are not subject to federal payroll taxes. It doesn’t take an IRS examiner long to find “Bonuses” and “Commissions”.
The big thing that came out of the audit, however, was the Service’s aggressive position on “Contract Labor”. Briefly, contract labor is a service provided by an independent entity that works without your direct supervision and is paid for the completion of the contracted service. A good example would be calling a plumber to unstop your drains. You don’t do the work, you don’t supervise, you just write the check when the water goes down.

The examiner scoured the general ledger for any potential contract services. The examiner was looking for services that were rendered but a form 1099-Miscellaneous was not generated. They asked to see form W-9 for each of these vendors. Needless to say most of us do not get a completed W-9 for each vendor. Each unfiled 1099-Miscellaneous is subject to a “per form” penalty.
So this week’s IRS lesson is simple. Be sure you know what constitutes taxable wages. And, get a completed W-9 from every vendor or trade that provides personal services to your company.

In our next blog, we will outline some of the penalties associated with both payroll and contract labor reporting.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin, Texas.

SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…..

…….Or, beware of what you seek

The IRS is the largest, most powerful collection agency in the world. The monster is alive and well. The Service has become very active in the auditing and monitoring of businesses that do not pay their payroll taxes.

I have always been amazed by the number of businesses that think the solution to their cash flow problems is to not pay the payroll taxes. Business owners and anyone that signs checks or reports, or is responsible for payroll preparation in any form are liable! That is correct. If you are the trusted bookkeeper that prepares the payroll, you are liable for the taxes. If you are the owner that just assumes the taxes are being paid, you are liable.

We have clients that owe back taxes for extended periods of time. Essentially there are very few options. You may pay the taxes in full and get on with life. You may do an installment plan. This exercise very seldom retires the liability since the interest continues to be applied.

Or, you may attempt to do an “Offer In Compromise.” This choice allows you to pay less than you actually owe. These are the guys that you see on TV with the big smile. The problem with this approach is that very few businesses qualify. This is not a negotiation. It is begging at the highest level. An overwhelming number of offers are rejected. If you have any assets either personal or business, the chance of an offer being accepted is remote. The Service will simply attach those assets and keep on billing.

The penalty for non-payment is very high. It is not unusual to see penalties that double the tax amount. In the old days, the IRS was very lenient on collections. It was rather easy to get both penalties and interest charges waived. Those days are over. The Government is aggressively seeking compliance with the payroll laws. They are in no mood to negotiate. They have allocated significant resources to perform the task.

In our next blog, we will let you know some of the things that came out of a recent payroll tax audit by the IRS. You will be shocked at the things that they look for and the things that you, as a business owner, are liable for.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin, Texas.

NEVER UNDERESTIMATE THE HEART OF A MOUSE…

….OR: Your Texas Legislature at Play

The Texas Legislature did not quite reach a budget accord. It seems that one gal had the tenacity to stand up to the establishment. I guess that means that all of those legislative folks will be spending part of their summer in Austin and not at their home.

In the end, I suspect that the establishment will win. I hope none of them have kids or grandkids in school, need any Medicaid, or want a new road because it isn’t happening! Our boys in Austin just plan to punt on first down.
The no new taxes mantra has gotten a little out of hand. As a taxpayer, I do not want any more taxes. That would cut into my fun money. As a citizen that dearly loves Texas, I am appalled at the legislature’s approach to our financial issues. Everything in the world has increased in price over the years. Government is not exempt from this trend. Simply put, if a trip to Office Depot cost me more today than yesterday, it also costs the State more. I remember when a burger at Whataburger was $ .50, gas was $ .20 per gallon, etc. The cost of life has increased. One legislator –a man whose claim to fame as a sportscaster in Houston that painted himself blue on Oiler game days - suggested that the solution was for government to just “tighten their belt.”

I am sure that there is some waste. I waste money. But, as a CPA that audits government entities, I will tell you that local governments bargain harder and watch their spending far closer than any of us civilians. Government entities pay their employees less, have fewer benefits, and older equipment than any of our non-governmental clients. ….and that’s a fact Jack!

At some point we have to increase revenues and trust that each entity will use the money wisely. We can do that and create new taxes. All that we need to do to increase revenue is apply the sales tax laws equally and re-set the Texas Margin Tax back to its original level.

There are too many exemptions from sales taxes. Let’s just tax all services except food and medical as the original sales tax law was designed. Why should professional services like attorneys, CPA’s, engineers and the like not collect sales taxes? Why should “packaged purchases” pay less sales tax than individual item purchases? The answer to these questions is simply special interest groups. Why not just treat everything the same?

When the Texas Franchise Tax calculation changed several years ago, companies that had always paid the state franchise tax were exempted.
We don’t need new taxes. We just need to put the existing taxes to work. Seems simple enough.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin.

PAY ME NOW, OR PAY ME LATER

Believe it when I tell you, everyone pays taxes. Some pay sooner, some pay later, but ultimately we all feed the machine.

Richard Hatch of Survivor fame is back in jail for the third time for tax evasion. In 2006, Mr. Hatch was sentenced to three years in prison and three years of suspended release. The IRS believes that the taxpayer owes $1.7 million in back taxes from earnings in 2000 and 2001. Penalties and interest have increased the amount to close to $2 million.

Whether the Internal Revenue Service will ever collect this amount is anyone’s guess. This time of year most of us in the CPA world are just plain tired of taxes. Everyone wants services but no one wants to pay the government. I, too, am in this group. The one thing that I have learned after 28 years is that dealing with the IRS on collection issues can be very difficult. The other thing that I have learned is that usually, somewhere down the line, Uncle Sam catches up with the taxpayer.

My advice to those that think they won’t be found, don’t be surprised if you get a letter from the IRS. It is considerably easier to pay each year and move on than it is to pay five years with penalties and interest. Take all the legal deductions. Be aggressive where possible. Pay now and don’t worry later.

Steve Cook is the CEO of Cook, Gola and Company PLLC, certified public accounts with offices in San Antonio and Austin. www.cookgola.com

VALUE-ADDED ACCOUNTING – INCORPORATING PAST, PRESENT, AND FUTURE

Our firm recently expanded into the Austin market by acquiring two existing firms with a good reputation and good clientele. We had been considering this option for a while, and decided to pursue it vigorously this past fall. While my partner and I were both extremely excited about this new venture, we also realized that buying a new firm (in our case, TWO new firms!) was a huge risk and would take some serious dedication, hard work, and good old fashioned schmoozing.

Essentially, we would be shaking up the foundation of a firm and expecting clients to transition to new operating procedures and new owners. While we wanted to maintain many of the previous owner’s ways of communicating and doing business, we also wanted to add our own flair and introduce some new ways of doing business. The key to introducing this change was by showing our clientele that we would be providing a value-added service.

Five months down the road, I can say that the transition was just as much work as we expected, but also just as fruitful. Here’s why: VALUE-ADDED SERVICES.

Of course we provide quality work, good customer service, and a fair price. But so does every other CPA on the block. What we’ve done is become a trusted advisor to our clients. Rather than focus solely on financials and historical data, we provide our clients with a look into their future.

Most business owners are more concerned about day-to-day operations and future growth and potential than they are about their prior year tax return. Sure, where you’ve been is important, but getting you to where you could be is invaluable. Our goal is to help you understand your financial situation and then help you improve it.

For instance, one of the clients we acquired is a rather large operation in the area. This client had been operating at a loss for the past twelve months and was at a loss for what to do. After visiting their offices, touring their operations, and reviewing their prior year financials, we were able to pinpoint the problem. The company had too many employees. Essentially, they had 10 employees working at a 40% productivity rate due to a decrease in demand. By cutting back to 5 employees, the potential for profit would be within reach. Needless to say, this was one happy client!

This is just one of many ways we have been able to provide a value-added service. Next time you’re in the market for a CPA, look for one who goes above and beyond the call of duty. It’s not just about reviewing your prior year tax return – it’s about looking at where you are today and where you could be in the future.

LeAnn Gola is the partner of the Austin office of Cook, Gola and Company, PLLC.

THE SPURS ARE DEAD…….. BUT ARE THEY BURIED?

This was the headline and first part of my blog on 05-11-2010…… It seems that little has changed in the last 12 months.

The million dollar question in San Antonio these days is “What is the state of the Spurs?” I guess that really should be the multi-million dollar question judging from the size of these quy’s contracts.

Professional sports are big business. It is high stakes poker at the highest level. As a businessman, I certainly don’t envy Peter Holt and staff’s current dilemma. They have invested millions of dollars over the next three years in a pair of 34+ past-their-prime superstars. They have a 6-10 point-center that hasn’t gotten a rebound in two years while making a few million. Throw in a worn out, unmotivated guard that also rakes in millions and Mr. Holt has some issues. Worse yet, the chances of getting a “difference maker” in the number 20 spot in the upcoming draft is rather remote.

Wow, what a tangled web!

That was directly from my blog of one year ago. Not much has changed. Our center would rather shoot three pointers. Our shooting forward won’t shoot. Our ace guard would rather play for France. The coach appears to be in denial. But this blog, like last year’s blog, is not about the Spurs. It is about business management. It is about managing your assets and allocating those assets in their highest and best use. It is about making the very tough choices that all managers face regarding their personnel. It is about managing the company’s financial resources in the most efficient manner.

Last year was very good for our CPA firm. Unlike the previous year, our sales were up. Better yet, our profitability was up. All of this was due to a plan that we placed in motion as the end of a poor 2009.

At the end of 2009, we reduced staff. We also graded our clients and eliminated those clients that didn’t pay their bills on a timely basis or who were undercharged. We did what we felt was best for the longer term.

At the end of 2010, we had enough cash to allow us to open an Austin office and upgrade some of our older equipment. Not too bad considering the general economy.

We analyzed our assets taking a longer term approach.As the manager, we must understand our position and the responsibility that accompanies it. Don’t forget to open the box. Good luck.

Steve Cook is managing member of Cook, Gola and Company, PLLC, a full service Certified Public Accounting firm with offices located in San Antonio and Austin. Follow us on Facebook at ez.com/CookGolaFB or Twitter at SABestCPAs or our website at www.cookgola.com

Fourth Quarter Year-End Payroll Reminders

Before the year ends and the New Year’s celebrations begin, make sure you have all your ducks in line for the end of year quarterly payroll reports.
• Check to see if you have any items to report.On or before your final payroll of the quarter, report in-house checks, voided checks, or sick/ disability payments to employees by a third party. Make sure to report any fourth quarter changes before the year-end deadline of 12/31/2010.
• Payroll LiabilitiesCheck with you payroll service provider to MAKE SURE all payroll liabilities for the year have been scheduled or paid. If not, attempt to get this taken care of as soon as possible to avoid any additional penalty or interest. Also verify that tax liabilities were collected for bonus checks.
• Confirm employee name and address list.Report employee changes to your payroll service provider and ensure that you have the necessary federal and state withholding forms available when reporting new employees. Verify correct name and social security numbers for each employee. Reminder: The IRS may charge employers a penalty of $50 for each returned W2 form that has a missing or incorrect SSN.

What’s New for 2011?
• In November, the IRS mails a notice that includes your deposit frequency for 2011. Be on the look out!
• Effective January 1, 2011 the IRS will discontinue accepting deposits made with Form 8109. If you are not registered to pay online via EFTPS, you will need to register.
• You should receive notification of your state unemployment insurance (SUI) tax rate for 2011. You need this rate to calculate the SUI tax and SUI expense correctly.